Indian Slip-Up Latest Snag for Bioresin Maker

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Can Cereplast Inc. bounce back?

The El Segundo bioresin maker has spent most of this year trying to unload nearly $9 million in receivables. Production was halted and sales plunged 98 percent for the first half of this year to a mere $300,000.

Chief executive Frederic Scheer had hoped to resume production by midyear, but unloading the receivables and the related inventory is taking longer than expected.

As a result, investors have fled, sending shares down 94 percent over the past year to just 21 cents a share Aug. 15. The stock has lost more than half its value in the last six weeks alone.

The company makes plant-based resins that, in turn, are used by others to make plastic goods that are biodegradable.

The company’s troubles began when the Eurozone crisis hit last year and two of its Italian distributors failed to pay the company $8.6 million for their clients’ orders of Cereplast’s bioresin. In May, Cereplast struck a deal to have an Indian company take over the inventory and resell it to companies in India, with a promise to repay Cereplast by the end of June.

But Cereplast executives are learning just how difficult it is to go into a new country. The Indian company, Singularis Solutions Pvt. Ltd. of Bangalore, had initially promised to send Cereplast a letter of credit by June 30 as payment. But that deadline came and went.

Late last month, Scheer flew to Bangalore to see what was causing the holdup. He learned that Singularis executives were waiting on Cereplast to verify product tests.

“Since we weren’t communicating on a daily basis with them, we didn’t realize they were waiting for those answers,” Scheer said.

Scheer chalked this up to a lack of understanding of Indian business culture and hired an Indian engineer to serve as a liaison. He said he hopes the sales will start before the end of the year.

Earlier this year, Cereplast reached a distribution deal with Albis Plastic GMBH of Hamburg, Germany, to sell Cereplast’s resin products in the United Kingdom. But, potential customers have yet to test the products to see if they can function as effective plastic substitutes.

“The companies need to run these tests before they order in bulk and that takes time,” Scheer said.

Cereplast has a similar situation with two unnamed U.S. companies. Scheer said that the two could order up to $3 million worth of resin products a year if the products test successfully.

Meanwhile, production at the company’s manufacturing plant in Seymour, Ind., is sporadic. Scheer hopes substantial production will resume by the fourth quarter.

Also, Cereplast is trying to diversify. Last week, the company announced it had secured patent protection for a bioresin that’s more resistant to heat. Scheer said practical applications include biodegradable packaging containers for hot foods and cutlery that can withstand dishwasher temperatures.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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